Collection Agencies: Transaction and Convenience Fees Are at Your Own Peril

The issue of whether transaction or convenience fees violate the Fair Debt Collection Practices Act (the "FDCPA") is subject to debate; however, the trend is toward a finding that they do in fact violate 15 U.S.C. §1692f(1).  The Northern District of Illinois joined those numbers last week.  Acosta v. Credit Bureau of Napa County, C.A. No. 14 C 8798 (N.D. Ill. Apr. 29, 2015). 

Section 1692f of the FDCPA prohibits “[t]he collection of any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law.”  In Acosta, the consumer took issue with language in the collection letter that provided for “”6 easy payment options”, including “Pay via Credit Card. ($14.95 Chase Receivables processing fee where applicable).”  As noted by the court, four of the five other payment options in the debt collection letter did not include a processing fee. 

The court’s analysis involved two steps.  First, the court had to determine whether 15 U.S.C. §1692f(1) was applicable and specifically, whether there was a “collection.”  Secondly, if there was a "collection," whether the fee fell within the statutory exceptions. 

In its motion to dismiss, the agency argued that there was no “collection” and therefore no violation of 15 U.S.C. §1692f(1).  The agency contended that the term” collection” means "to claim as due and receive payment for." The agency argued that the $14.95 credit card processing fee was never claimed as due and in fact, four other options which did not require a processing fee were offered.  The court disagreed and took a much broader view of the term, stating that in order for there to be no collection, defendant would have to establish that the fee was passed through to a third party processor.  While the court’s rationale was based upon its desire to effectuate the FDCPA’s legislative intent, it ignored the fact that while §1692f generally prohibits the use of unfair or unconscionable means to collect or attempt to collect a debt, subsection (1)’s application is specifically limited to collection.  See, e.g., 15 U.S.C. §§1692f(4) and (6). 

Having determined that there was a collection, the court went on to consider whether the $14.95 credit card processing fee was subject to one of the two exceptions set forth in 15 U.S.C. §1692f(1)- that is, whether it was: (1) authorized by agreement between the parties; or (2) permitted by law.  Since the complaint included an allegation that “there is no agreement authorizing the [processing] fee, the court determined, for purposes of the motion to dismiss, that the first exception was not present and moved to the second exception. 

In determining whether the processing fee was allowed by law, the court reviewed the Illinois Collection Agency Act which states “[c]ollecting or attempting to collect any interest or other charge or fee in excess of the actual debt or claim unless such interest or other charge or fee is expressly authorized by the agreement creating the debt or claim unless expressly authorized by law or unless in a commercial transaction such interest or other charge or fee is expressly authorized in a subsequent agreement.”  225 ILCS 425/9(a)(29).  The court determined that because the state statute did not authorize the collection of processing fees and the debt was a consumer debt, the processing fees were not permitted by law.

So what does this mean for collection agencies? Taking into account Acosta, as well as recent decisions from New York (see, e.g., Quinteros v. MBI Associates, 999 F. Supp. 2d 434 (E.D.N.Y. 2014)) and positions taken by regulating entities (e.g., North Carolina), collection agencies should carefully review their policies as to the propriety of convenience fees and consult with their counsel to insure compliance with the FDCPA and state law.